The Environment Writer

Recently, I traveled to Amsterdam on a course designed by the Foresight Design Initiative to make a comparative analysis of sustainable innovation in Chicago and Amsterdam. Both cities are doing fascinating work in the environmental sector, but one of the most simple yet striking features of sustainability in Amsterdam is the bicycling. I probably don’t need to spend much time describing why bicycling is one of the most sustainable, healthy and freeing modes of transportation, but the cultural pervasiveness of bicycling in Amsterdam and the Netherlands can certainly teach us some lessons. The following is a short excerpt from my presentation at the Chicago Green Drinks about our bicycling tour Amsterdam:

There are several reasons why bicycling is so popular in Amsterdam: like Chicago, it’s a flat city. They have very little space (a reason which motivates many of their environmental initiatives), so they have to embrace alternative forms of transportation (perhaps even alternative forms of bikes). The city has a history and culture built around bicycling which leads to the development of policy and infrastructure around the bicycle. The combination of culture, policy and infrastructure make this a very practical and comfortable form of sustainable transportation.

On what must have been one of the coldest days of the year in Amsterdam, not so different from the weather we left in Chicago, our group went for a morning bicycle tour with Pascal van den Noort, director of the organization Vélo Mondial, an international non-profit that promotes cycling.

Some interesting features of the tour included dedicated and separated bike lanes with their own stop lights, features like the award winning Nesciobrug pedestrian and biking bridge and other newer developments incorporating features like bike lanes between buildings and traffic diversion to the periphery.

On the topic of making bicycling a practical, comfortable and safe experience, I was interested to see the lack of bicycle helmets – I don’t think I saw one the entire trip. While personally I’m a fastidious helmet wearer in Chicago, this contrast really exemplifies the ease of biking in Amsterdam and the stress and danger of biking in Chicago. The biking culture and environment in Amsterdam really does promote a safe and relaxed environment for riding that can be utilized by everyone from men and women to small children to the elderly.

One last plug has to be made for our excellent tour guide Pascal and his organization. Vélo Mondial promotes cycling as a positive mode of transportation and sustainable mobility through global conferences, projects and events. I hope there could be a potential to involve the organization in the promotion of biking here. In Amsterdam, a city where Pascal described one of the main problems as “not enough bicycle parking,” I have high hopes that Chicago can and will learn a great deal in terms of making sustainable mobility a practical, comfortable and typical activity in the city.

Bicycle Parking (from velomondial.blogspot.com)

There has been much ink spilled over the environmental and economic costs and benefits of the federal government’s “Cash for Clunkers” program (officially known as the Car Allowance Rebate System)- whether the higher gas mileages outweigh the benefits of new raw material use, whether the foreign automobile sales really helped the American economy or whether the money spent there would have been spent elsewhere anyway.

But a certain economic aspect of the program I have not heard frequently addressed frequently is the resulting deadweight loss from the economy in the long term because of the inefficiency resulting from taking an entire segment out of the used car market.

For simplification, I will disregard the requirements and break vehicles into three segments based on economic value in a hypothetical regular market:

Group A. High Value: > $4,500

Group B. Medium Value: $1,000 to $4,500

Group C. Low Value: < $1,000

Here it is important to pose a new vehicle to purchase in our hypothetical example, and we select the cheapest to find out what the minimum cost to the consumer is in this program. The Hyundai Accent GS Base is the cheapest new car on the current market, running around $10,000. In the highest rebate Cash for Clunkers category, the consumer can receive a $4,500 credit. This leaves the consumer paying, at a minimum $5,500 to participate in the Cash for Clunkers program.

Minimum Vehicle Cost ($10000) – Maximum Rebate Allowance ($4500) = Minimum Consumer Cost ($5500)

Group A, the highest value used cars, are not worth trading into Cash for Clunkers because they are worth more on the market than the value of the rebate.

Group B, the medium value vehicles, are the most useful for Cash for Clunkers, because the economic return to the consumer is greater than the value of the car. Additionally, individuals owning cars valued at $1,000 to $4,500 are far more likely to be able to afford the minimum consumer cost of $5,500 for a new vehicle, unlike:

Group C, the low value vehicles. Like Group B, the economic return is greater than the value of the car, greater even than those consumers in Group B. However, these consumers are much less likely to afford the minimum $5,500 necessary to take part in the program.

The clincher comes when one considers what Group C will do 1-5 years in the future as their low values cars necessarily need replacement. Normally, consumers in Group C would move to cars in Group B that have reduced in value enough to become affordable to them. However, many of the Group B cars have been taken out of the market due to the program. The result is a future bottleneck as demand outstrips supply of Group B cars as Group C begins to need them.

Group B vehicle prices will increase. However, because having a vehicle in the US is rather inelastic (ie, necessary, so the demand will not change much) consumers in Group C must either spend a higher percentage of money on these vehicles (at the cost of something else) or suffer the potential economic, employment and social consequences of not having a vehicle, which are rather great in the United States. Many on the edge of affordability will not have a choice and will be forced to take the latter.

This scenario, which government and consumers have gladly bought into in the Cash for Clunkers program, is called ‘deadweight loss’ a term describing an economic inefficiency when goods and resources are not allocated efficiently. When we talk about efficient resource allocation, we are also talking about environmentalism. Although we must use natural resources to live, environmentally conscious living uses the least resources for the greatest gain, which is also economic efficiency.

When doubts about the ostensible environmental and domestic financial short term gains from the program are put into the equation, we will only be able to look back at the Clash for Clunkers program with regret.

Economics by nature is the study of tradeoffs. However, when politicians propose a development projection, like the Richton Salt Dome Strategic Petroleum Reserve (SPR) project, somehow they’re all agreeing that there is no tradeoff – everybody wins forever. Supposedly, it will have no adverse impacts. Senators Thad Cochran (R-MS) and Roger Wicker (R-MS) sound like they’re rapping a repetitive hip-hop hook, as long as they keep repeating “jobs, infrastructure, energy security…jobs, infrastructure, energy security”. Unfortunately, just saying it enough doesn’t make it come to pass.

 
The Richton, Mississippi salt dome is the proposed site of a Department of Energy (DOE) SPR expansion. On the surface, the DOE portrays the project as a reasonable idea – the ground surface is minimally damaged and salt domes are typically fairly impervious choices to hollow out and stockpile petroleum reserves. The reserves can be used in emergency situations. They have been used twice since the SPR system was enacted in 1975, during the first Gulf War to overcome the OPEC blockades and during Hurricane Katrina when the Gulf Coast pipelines were disrupted.

As planned, the Richton project would squirrel away 160 million barrels of oil, or 16% of the planned SPR of 1 billion barrels (it stands now at 727 million barrels).

The powers that be, led by the DOE, would like you to think that this is a no-brainer and the best alternative for strategic petroleum reserves. However, when you consider the long-term environmental and economic costs to the state of Mississippi and the United States as a whole, the argument doesn’t stack up.

First let’s explore the “positive” talking points the politicians have.

 1. The 160 million barrel stockpile is a lot of oil- it will really help us to weather any catastrophe.

This actually isn’t that much – it would last the U.S. about 7 days at its current consumption of 20.68 million barrels per day.

2. Hundreds of construction jobs will be created.

For a while- most will be very temporary and continue the cycle of boom-bust economy which has us struggling right now.

3. Additional infrastructure will be created for the State of Mississippi.

The infrastructure the politicians brag about, once installed, will not be used for anything else. They will sit there until the SPR has to be tapped, which for now averages to be once every 19 years. This is wasted infrastructure and a deadweight loss to the economy.

4. The reserve will lower the price of oil.

No it won’t, Senator. Don’t make me explain this one.

What are the negative effects?

 
The Economy

The project is estimated to cost $2.9517 billion dollars in addition to $35-40 million a year in upkeep costs for perpetuity. Add to that the cost of stocking it with oil, which the average DOE estimate comes out to $9.704 billion.

In the end, this will directly cost $12,655,700 in addition to the yearly upkeep costs. This does not include the potential effect of raising oil prices while stockpiling.

The Environment

They propose desalting the mine by pumping water through it for 5 years at 50 million gallons per day. That water has to come from somewhere and go somewhere. The proposal has been to take it from the Pascagoula or Leaf Rivers causing incredible damage to the habitats of several threatened species. The alternative is to pump it from the gulf, at an even greater cost than originally planned. While this will save the rivers, the dissolved brine slurry will have to go back out to the gulf, producing detrimental effects to the salt balance.

Leaks in the pipeline that takes out the brine slurry, which even the DOE admits will happen, will destroy wetlands. Even in the Environmental Impact Statement, the DOE admits that 1557 acres of wetlands will be disturbed, some irreversibly. Wetlands are important, so important in fact that there have been estimates that each acre of wetland provides economic benefit of $9,000 dollars per year through such things as water infiltration, pollution filtering and storm buffering. Add on another $14 million to the yearly upkeep, DOE.

Of course the environmental damage will contribute to all sorts of other indirect costs to the economy such as commercial fishing, sport fishing, effects on small businesses that use the water, ecotourism, etc. There are very modest and short term financial gains from building the project to the construction workers and engineers. There is little to no financial gain from the finished product – in fact it is a deadweight loss of the value of the oil and the cost of upkeep while it is not being used. The financial losses from the environment are permanent.

One of the most tragic parts of the story is the way the DOE has proposed and attempted to implement the project – at best shady and at worst illegal. But, of course, for an illogical and terribly planned project that is really the only way to do it. The environmental impact statement (EIS) required for a project like this is legally obligated to explore reasonable alternatives. Although full of big words and geological studies, the DOE certainly has not given full faith.

The original project specifications necessitated that it be able to hold 160 million barrels of oil. The DOE chose several “reasonable alternatives” to study that held far less than that capacity. The sites were, unsurprisingly, rejected because they only held 60 million barrels and not the required 160 million barrels. Thanks DOE for that insightful study into sites you already knew wouldn’t work in the first place.

Here is my alternative to the project: DO NOT DO IT.

It seems they forgot to explore the “No Action” alternative in the EIS, which is standard procedure in writing an environmental impact statement. Instead, I suggest creating an emergency fund for the state of MS or even all the gulf coast states with the 12.6557 billion dollars and add 40 million a year to it. Plan emergency management from the interest (at 2% that is still over 250 million a year).

Better yet, give everyone in the state 2.9 million dollars- less than the cost of the project and let them plan for the emergencies – they’ll know what to do better with it, it will cost less, and they won’t be paying for irreparable short and long-run mistakes.

“But while the cost of action will be great, I can assure you that the cost of inaction will be far greater, for it could result in an economy that sputters along for not months or years, but perhaps a decade. That would be worse for our deficit, worse for business, worse for you, and worse for the next generation. And I refuse to let that happen.“

On February 24, 2008, President Obama received standing ovations when he asked for a market based cap on carbon emission during an address to a joint session of Congress. This groundbreaking statement provides hope that the current administration will not delay in instituting a cap and trade system to provide economically efficient measures to combat global warming.

Although official statements asking for carbon legislation are groundbreaking, cap and trade system is not a new concept to America. In fact, we invented the system. The US National Pollution Control Administration in the late 1960s began modeling the effects of such a system, and it was finally instituted as part of the Acid Rain Program by the EPA for sulfur dioxide emissions in 1990. The goal was to cut the output of SO2 to about 47% of 1980 levels by 2000. The results of the program are widely regarded as immensely successful and is seen as a model for cap and trade legislation.

Thank you, President Obama, for quickly addressing an important subject that, if executed properly, will make us a global leader in combating climate change as well as encouraging new markets and environmental efficiency. As the adage goes, the devil is in the details, but we already have the proven capacity to create a successful cap and trade market and the experience of the setbacks of the European cap and trade execution to build the most successful and active carbon market in the world.

(from nytimes.com)

“But to truly transform our economy, protect our security, and save our planet from the ravages of climate change, we need to ultimately make clean, renewable energy the profitable kind of energy. So I ask this Congress to send me legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America.”